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BEIJING (Reuters) - The global economic outlook for the second half of the year is at risk of a sharp downward revision this week when China, the main driver of world growth, publishes quarterly data that analysts widely expect to be the worst in at least three years.
Economists polled by Reuters reckon annual growth between April and June was the weakest China has seen since the three months to March 2009, back when the grip of the global financial crisis was tight and fiscal and monetary policymakers around the world were compelled to join forces to revive the economy.
A surprise interest rate cut from the People's Bank of China last week - the second in a month - on the same day that the European Central Bank also cut rates and the Bank of England expanded its quantitative easing program - has only served to deepen the downside risks being priced into asset markets.
But too narrow a focus on raw numbers and the apparent inadequacy of action so far to reverse decelerating activity in the United States, Europe and Asia could easily miss the point that in China - the biggest marginal generator of growth - politics are shifting policy into pro-growth high gear.
"In the second half as we get closer to the Communist Party (leadership transition) and GDP growth falls closer to their 7.5 percent target for the year, the government will become much less tolerant of a further slowdown," Zhang Zhiwei, Hong Kong-based chief China economist at Nomura, told Reuters.
The once-a-decade handover of power in China is a showpiece event which the government is determined to ensure takes place against a backdrop of social stability and economic prosperity, the delivery of which the Communist Party says justifies its one-party rule.
So, perversely, the worse the numbers from China look in a week which starts on Monday with inflation data and ends on Friday with Q2 GDP, the greater the likelihood of a policy response to prettify them ahead of the autumn power handover.
"I would imagine the quarter on quarter number will drop below 7 percent (on an annualized basis) and potentially quite a bit below it," Zhang said.
China's economy grew at a 6.8 annual rate on a quarterly basis in the first three months of the year. Year on year, Q1 growth was 8.1 percent.
Analysts in the latest benchmark Reuters poll forecast annual growth to have eased to 7.6 percent in the second quarter, implying a further quarter-on-quarter slowdown.
But even if China's government can reverse the sequential slide and engineer a second-half recovery, evidence of deepening risks abound elsewhere, according to the latest surveys of purchasing managers.
"The bottom line is that the global economic slump that has permeated the manufacturing sector has now started to migrate to the services sector," said New York-based investment consultancy MES Advisers in a note to clients analyzing PMI survey results from the world's five biggest economies.
May trade data due from Germany on Monday is set to show a further retreat in exports, with sales to fellow euro zone countries likely in outright decline as the bloc's debt crisis lingers and growth in shipments to Asia and the U.S. slowing, while trade data from China on Tuesday is expected to show a softening in June from May.
Industrial activity data from Britain, France, Italy and the wider euro zone are all expected to show a weakening on the previous month.
Meanwhile, with consumer and producer inflation data among the other dominant indicators due to be published in the week ahead by the world's biggest economies, there's every risk that easing price pressures could be seen to be signaling something more than simply room for maneuver for policymakers.
"In a nutshell, the global economy suddenly looks in a perilous state and, rather than pre-empting a downturn, central bankers may have found themselves blind-sided by a recessionary onslaught, or even worse - deleveraging and deflation," Geoffrey Yu, foreign exchange strategist with UBS in London, said.
Unemployment and housing in the United States, credit allocation in Britain, institutional deficiencies in China and structural problems throughout the euro zone all emphasize downside risks to Yu and the likelihood of further easing from the world's major central banks.
Analysts at Societe Generale think the Bank of Japan might well find itself compelled to expand its asset purchase program on Thursday after reviewing the quarterly update of its outlook for growth and inflation.
A detailed view of the U.S. Federal Reserve's latest thinking will be available on Wednesday when minutes from its last policy-setting meeting in June are published.
The Fed held off on another round of bond-buying last month but its chief, Ben Bernanke, has said there was "considerable scope to do more" and Wall Street bond firms polled by Reuters saw a 50 percent chance of another asset purchase program.
Speeches from various regional Fed presidents during the course of the week will inevitably be scrutinized for the likely leanings of policymakers in the world's biggest economy.
But it's China that will hold centre stage as investors scrutinize data that complete the picture of the first half of the year to assess whether the economy's slowing growth trajectory is gentle enough to avoid a hard landing - and any spillover effects on the global economy.
"The riskiest thing in investing is believing that there is no risk," Howard Marks, chairman of specialist distressed debt investor Oaktree Capital Management which managed assets worth about $78 billion as of the end of March, told reporters while visiting Beijing last week.
"But based on current prices, there's much less vulnerability to the risk of a hard landing."
Reporting by Nick Edwards; Editing by Ron Popeski